According to political sources on Sept. 15, Rep. Jeon Eun-su of the Democratic Party, a member of the National Assembly's Trade, Industry, Energy, SMEs and Startups Committee, plans to introduce the special law on employee buyouts during the fourth quarter. The bill is being prepared in consultation with the Ministry of SMEs and Startups. With Lee So-young, the nominee for SME minister, signaling the same day that she would support employee-led business succession, the work is expected to gain momentum.
The special law is expected to establish a framework enabling smooth financing of acquisitions through special purpose companies (SPCs) set up for employee buyouts. Currently, employees seeking to acquire the company where they work must establish a corporation with separate articles of incorporation and then individually take out loans to raise the funds. Critics say the process takes a long time because each employee's credit standing and borrowing limits must be assessed, and it saddles individuals with heavy personal debt. The special law is also reportedly being considered as a way to provide tax benefits without imposing debt directly on individual employees.
At a policy forum Jeon held last month, participants proposed setting up an "acquisition purpose corporation" to play a central role in employee buyouts and raise the necessary funds. Under the structure, acquisition financing would be raised through a corporation established for the purpose of acquiring the company. Also discussed were plans for policy finance institutions such as the Korea SMEs and Startups Agency, the Korea Credit Guarantee Fund and the Korea Technology Finance Corporation to provide guarantees, with dividend income generated after the acquisition used to repay the borrowings. "The government has created a tax exemption for third-party business succession, but tax support alone is not enough," Jeon said. "We need a system that supports financing as well as job retention and investment after the succession."
